Is the new Tax-Free Childcare Scheme better for your employees?

The cost of childcare is a regular topic amongst young families. We know numerous people who struggle to pay for childcare when the primary carer goes back to work. . In many cases it just doesn’t make financial sense for the primary carer to go back to work, as childcare costs can wipe out the majority of the take home pay.

To give you an idea, families spend an average of about £6,000 a year on a single part-time nursery space. And most families have more than one child.

What’s the change all about?

From this April, the government has started to roll out a new scheme designed to provide help with childcare costs for parents who work – the Tax-Free Childcare Scheme (‘TFC Scheme’). This will eventually replace the employer Childcare Voucher Schemes (‘Voucher Schemes’) but for now the two types of scheme will run alongside each other, although parents can only take part in one of them.

Who is the new TFC Scheme for?

It’s designed specifically to help working families (including self-employed parents) with children under the age of 12 (or under 17 if disabled).

The new TFC Scheme means that for every £8 the parents pay in childcare, the government will pay an extra £2 towards the cost of the childcare, up to £2,000, per year, per child.

This is equivalent to a 20% basic rate tax saving, hence the name, but it does not have any element of National Insurance saving. The government has already started inviting parents to apply for the TFC Scheme, which will involve opening a childcare account into which is paid the parents’ money and the government’s contribution. This money can then be used to pay the childcare provider, as long as that provider is signed up to the Scheme.

As an employer, you don’t need to do anything to enable your staff to participate in the TFC scheme. The government is making the TFC Scheme available to parents of younger children first, starting from the end of April.

So how does it affect businesses?

It’s always good to be in a position to advise your employees about what benefits are best for them. If you want to help your employees with the cost of childcare whilst they are working for you, you now have a choice. Each scheme can benefit different types of parents depending on their personal and financial circumstances, so it is worth looking at the pros and cons of each scheme to determine whether to encourage your existing employees to switch over to the new scheme.

New employees will not be able to sign up to Voucher Schemes after April 2018 and if existing employees using Voucher schemes decide to go for the TFC Scheme they will not be able to change their minds at a later date.

To help you out, we’ve listed some of the benefits of each scheme below:

The TFC Scheme will be good for your staff if:

You are not able or willing to set up an employer based scheme

Their partner is also working (unless they are unable to work through disability or because of caring for a disabled person)

They are a single parent

They are not receiving Tax Credits or Universal Credit

Their children are under 12 (or under 17 if the child is disabled)

They are parents with more than one child as you get more for each child

They are parents with child care costs over £9336 pa if basic rate taxpayers

They are parents with child care costs over £6,252 pa if higher rate taxpayers

The TFC Scheme is also available to self-employed people, in contrast to Voucher Schemes.

The TFC Scheme will not be good for any of your staff if:

Either they or their partner earn over £100,000 pa

They are in receipt of Tax Credits or Universal Credit

Their children are aged between 12 and 15

The other parent doesn’t work either as an employee or as a self-employed person

They are basic-rate taxpayer parents with total childcare costs of £9,336 or less – under this amount the saving made with a Voucher Scheme will normally exceed the possible saving under the TFC scheme

They are higher-rate taxpayer parents with total childcare costs of £6,252 or less – again the saving made under this amount with a Voucher Scheme will normally exceed the possible saving under the TFC Scheme

In addition, you may already be aware that the government is doubling the number of hours of free childcare for 3 or 4 year olds in September this year, from 15 hours to 30 hours. Staff can use the TFC Scheme and Voucher Schemes alongside this free provision.

Making your staff aware of these changes can help them feel valued and appreciated. If you would like to speak to a consultant about this please call 0333 444 0165 or email help@citrushr.com